Actuaries: the next Luddites?

In early 2011, New York Magazine published a set of statistics that compared the market capitalisation and number of employees of the top ten US companies in 1964 and 2011. These numbers told a sobering story. Today’s top companies are no longer the large job-generation engines that their counterparts in the 1960s were. The ‘Great Leap Forward’ in revenues of these top companies is created by an increasingly dwindling workforce (think Apple, Google, Facebook). Google had only about 32,000 employees in 2011, but each on average generated $1.2m in revenue. This has become a ‘normal’ ball-park figure for the internet sector. In comparison, lower-tech sectors such as manufacturing and retail generate around $100,000 in revenue per employee. What this tells us, on the face of it, is that a million-dollar increase in GDP, which might have created ten jobs in the past, may only produce one new job in the future.

In the long run, this story is not uniquely American. We like to blame our politicians for not saving the manufacturing jobs being shipped to overseas destinations. However, many of us fail or refuse to see a more general trend. It’s a trend that should prompt us to take a long, thoughtful look at our entire economic system, our wealth generation and distribution mechanism, and perhaps our whole way of life. Intelligent machines are taking jobs away from humans. The classical argument for the mechanisation of labour since the demise of the Luddite movement – that machines create more jobs than they destroy – is by no means a certainty, and at the very least can cause significant shift in the skills demanded across the economy.

Here is my humble conjecture. The overall workforce in the traditional actuarial role will shrink.

So what does this have to do with actuaries?

Computers are constantly transforming the way that actuaries perform their work. Given the amount of intellectual talent and momentum actuarial software developers have garnered, we can reasonably expect even faster advancement in the years to come. Modern actuarial software interfaces contain vast amounts of product features, methodologies and assumptions, and results are being produced with increasing speed.

Fretting about Solvency II? Don’t worry – the intensive stochastic valuations, which used to be done on giant computer farms reserved for the well-endowed few, can now be performed on most actuaries’ personal computers, thanks to the innovation in multi-core processors and clever algorithm design on the part of software engineers.

As a result, the majority of on-the-job training for the new generation of actuaries centres on how to push the right buttons and how to interpret the results, which are handed out on a platter. No wonder random chats with young actuaries so often reveal a sense of unfulfilled intellectual energy, compared with only one generation ago, when actuaries enthusiastically applied their computational skills with little help from computers. Even checks and reconciliations of results are likely to become more mechanised in the future, as we grow to trust our machine friends, with little need for manual reconciliations. More importantly, long before the technology reaches that near-perfect state, most of the jobs that focus on operating the machines would already have become obsolete. And as the machines and software become more and more perfect, a less qualified – and thus less costly – workforce may become more appealing to future employers. This is not an imaginary scenario: some insurance companies are already hiring majors in science, engineering or general business to do traditional actuarial work.

Irreversible shrinkage

To be clear, I am not arguing for the total obsolescence of the actuarial profession. However, I am arguing that the need for a large actuarial workforce will diminish, much like most of the other intellectual professions facing a similar technological trend. We should not be complacent about the value of ‘actuarial judgement’, and the impossibility of mechanising parts of it by combining data with decision algorithms. Given the formulaic and encodable nature of such a vast section of actuarial knowledge, I believe traditional actuarial job opportunities can be expected to undergo irreversible shrinkage.

Currently, I see two items that have helped to slow this trend; however, I feel that they are both only temporary. First, the strong market recognition of actuarial credentials creates demand in some areas where they are no longer strictly needed. Over time, more and more employers will realise that they can replace much of their traditional actuarial workforce with personnel holding fewer credentials but equipped with fancy actuarial software. Second, there is the ongoing turf war among insurance and pensions regulators all over the world, who are busily churning out different sets of valuation and capital standards, and reluctant to collaborate and agree on a uniform set of rules. This reality, for better or worse, has kept actuaries occupied worldwide. There may not be an intrinsic reason why a US valuation on the same product has to be done differently from a European or Asian one, but it has certainly saved many actuarial jobs for the time being. However, armed with neat algorithms and fast computation powers, even doing three sets of valuations per day on the same product may not be enough to keep an actuary busy in the future.

So what is the future of the actuarial profession as we move towards the ‘post-labour’ economy? Here is my humble conjecture. The overall workforce in the traditional actuarial role will shrink. The best minds among actuaries – a very small percentage who are highly intelligent and truly passionate about the ‘science’ part of the profession – will be required for the maintenance and new development of the super-machines. Another handful of actuaries will be needed to operate the machines and occasionally interpret results that are not entirely user-friendly. With the decrease in the need for actuaries in the corporate space may come new opportunities for actuaries to help the general public to better understand the inner workings of insurance and finance. The redundant actuarial workforce may find employment in consumer protection groups, or strike out on their own to work for the end-users of insurance and pensions products. Our profession has long expressed a desire to serve the public, and this will be a good opportunity to transition the profession to a more public-oriented service model. With more actuarial expertise available to the general public, consumers will have more power to pressure the industry to redistribute the values of insurance and pensions products in the future. This in turn could trigger a more fundamental change in corporate structure and culture, product design and the market in general, as corporations shift their focus further towards serving policyholder interests.

Those actuaries who cannot find employment either in the traditional industry or consumer spaces may still be able to transfer their knowledge and skills to other fields. Many nascent niche fields such as climate finance, green projects forecasting and management, microinsurance and many more, could greatly benefit from actuarial knowledge and skills. Many of these fields directly confront issues such as climate change and poverty in the Global South, which are arguably the most pressing issues currently challenging the human species.

Actuarial education

A few things come to mind on the topic of education. We should have honest conversations with students about the looming change in the quantity and nature of actuarial jobs due to technology trends. We will have to closely monitor the number of students graduating, since flooding the job market with huge numbers of candidates would be irresponsible. In our classrooms, we should introduce examples of the application of actuarial skills outside the traditional fields, to widen students’ horizons, and help them to realise the potential of their knowledge in other fields. We should emphasise the ethics of serving the public, and instil a sense of responsibility as well as pride in becoming a public-serving actuary. We need to pay special attention to honing skills that can transcend our specific field, something humanities teachers often call ‘critical thinking’. Instead of memorising a dry mathematical formula, can you explain it in simple English? Can you give an intuitive and visual interpretation? Such skills will endure a lot longer than formulas fading in their memories after an actuarial exam. Lastly, actuaries have long been categorised as technicians, who are often in danger of losing sight of a bigger picture. We should encourage students to take courses from other disciplines, including the humanities. Inter-disciplinary studies will also be essential for those eyeing a non-traditional career path.

All of these are challenges for our universities, yet they also force us to consider the ultimate value of an actuarial education in an academic setting. While I have argued for the role that the professional credentialing process plays in temporarily providing job security for candidates, I see universities as having a better chance of providing the basic skills that future actuarial candidates will need to weather the post-labour economy.

Technology and its impact on the workforce has been the elephant in the room for our profession, as well as for wider society. It’s not hard to see why there hasn’t been an open discussion on this issue – it is not exactly the best PR strategy for any profession. However, we simply cannot afford to keep ignoring the tsunami that is coming our way. Risk is opportunity – are we capable of bravely and honestly facing the looming risk and discovering the opportunities that it may have in store for us?

Vicki Zhang teaches at the University of Toronto's Actuarial Science programme, having previously worked in the US and Canada as a consulting actuary, actuarial software developer and trainer.